Semiconductor industry companies

May 30, 2023
Semiconductor Industry

A wave of mergers and acquisitions is reshaping Silicon Valley's semiconductor industry as companies join forces to shoulder the soaring technology costs required to stay competitive.

Half a dozen chipmakers in Silicon Valley, including a few storied names, have changed hands in less than two years in nearly $12 billion in mergers and acquisitions affecting thousands of employees and costing some their jobs. In one merger 1, 600 people are being laid off.

"The net winners are investors. The net losers are the employees who lose their jobs, " said Betsy Van Hees, an analyst with Wedbush Securities.

In the biggest deal yet, Singapore-based Avago Technologies, which bought Silicon Valley's LSI a year ago, announced Thursday that it will acquire Broadcom, an Irvine-based chipmaker and major supplier of integrated circuits for the mobile-phone industry, for $37 billion in a cash and stock deal. The acquisition will create a $77 billion company, Avago said. While it is incorporated in Singapore, Avago - a spinoff of Hewlett-Packard's semiconductor operation that went public in 2009 - says it is "co-headquartered" in San Jose.

With that announcement, key industry mergers and acquisitions pending or completed, including companies not in the valley, totaled more than $60 billion in the same period.

The targets of all this activity make a variety of specialty chips for industrial, automotive, mobile and storage applications and include valley companies Volterra Semiconductor, LSI, OmniVision Technologies, Integrated Silicon Solution Inc. (ISSI), Spansion and Silicon Image.

"We're at a point where the cost of being at the leading edge is becoming prohibitive for all but the largest semiconductor companies, " said Mark Hung, an analyst with the technology research firm Gartner. Hung said it can cost $100 million to produce a leading-edge chip. "It's very different from a decade ago, when you could get a viable chip done with $10 million to $30 million, " he said.

"Even fairly big companies really cannot afford to stay ahead of their competitors. That's why you're seeing this wave of mergers and acquisitions, " he added.

Chipmakers are dealing with the increasing expense of producing their devices as transistors sink toward the size of a few atoms, while at the same time getting ready for an expected wave of new applications for the Internet of Things and its billions of connected devices, analysts say.

The industry is still growing, but is undergoing a natural consolidation, said Mike Wyatt, head of global technology mergers and acquisitions for Morgan Stanley. "The semiconductor market is a huge market, " Wyatt said. "You really have to be a big player to compete effectively."

Global semiconductor sales were $335.8 billion in 2014, with $173 billion of that in U.S. sales, according to the Semiconductor Industry Association.

The $6.6 billion acquisition of San Jose chip company LSI by Avago started the ball rolling after it was announced in December 2013, said Raymond James analyst Steve Smigie. Avago makes communications devices for cellular phones and base stations, data networking and industrial use.

The share price of an acquirer typically drops after the acquisition, but in the case of Avago and LSI, the prices of both companies went up, he said.

"Acquirers are like, 'Hey, investors are going to pay for that now, ' " Smigie said.

The growth of the Internet of Things also has set off a scramble not to be left behind in what may become a major market for tiny embedded chips and sensors. Mergers can bolster a company's technology.

In just such a deal, Cypress Semiconductor of San Jose merged with Spansion, based in Sunnyvale, in a $1.6 billion acquisition announced in December. The deal bolstered each company's micro and memory chip offerings for cars, medical and mobile devices, Ernst & Young noted.

But it also triggered a layoff of 1, 600 employees. "Everyone has been notified, but not all have left yet, " said Cypress spokesman Joe McCarthy.

Cypress also is battling to acquire ISSI, which had all but inked a deal to be acquired by a Chinese private equity consortium for $639.5 million in March. ISSI's largest shareholder, activist hedge fund Starboard Value, expressed "serious concerns" that Cypress was not asked to bid on Milpitas-based ISSI and pushed its board to consider an offer from Cypress. The Chinese deal is on hold while Cypress explores a bid. A Chinese consortium with some of the same members closed a merger deal with OmniVision of Santa Clara for $1.9 billion in April.

The merging and acquiring is creating some powerful players. The Dutch firm NXP acquired Freescale, an Austin, Texas, semiconductor company, in an $11.8 billion deal, which will make it a strong player in the Internet of Things.

"That one is going to create a powerhouse, " said Jim McGregor of Tirias Research. Competitors "were in shock, " he said.

NXP and Freescale said the combination of the two companies was "focused on the high growth opportunities in the Smarter World, " another name for the Internet of Things.

Source: www.mercurynews.com
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